from the better-to-ask-whether-the-traditional-drug-development-model-is-sustainable dept

Pharma companies generally like to give the impression that their business is a win-win kind of thing: you get better, they get sales. But sometimes the mask slips, and the real strategy that lies behind the benevolent exterior is revealed. For example, back in 2014 we wrote about the CEO of Bayer, one of the biggest drug companies in the world, openly admitting it developed medicines for rich patients in the West that can pay high prices, not for those in places like India that need them just as much, but can't afford them.

Now CNBC has spotted another revealing remark that probably reflects what many in the Big Pharma world say privately. It appears in a report called "The Genome Revolution" about a new generation of treatments based on powerful genomic techniques like CRISPR. They hold out the hope that many diseases can be cured permanently, for example by editing the patient's DNA to replace genetic code that is causing the problem. The report asks: "Is curing patients a sustainable business model?" It goes on to explain the issue here:

"The potential to deliver 'one shot cures' is one of the most attractive aspects of gene therapy, genetically-engineered cell therapy and gene editing. However, such treatments offer a very different outlook with regard to recurring revenue versus chronic therapies," analyst Salveen Richter wrote in the note to clients Tuesday. "While this proposition carries tremendous value for patients and society, it could represent a challenge for genome medicine developers looking for sustained cash flow."

That's a fair analysis. Given the choice between creating a product that cures people after one use, and another that requires a lifetime's supply, the rational choice for a company is the latter. The analyst's question, shocking as it is, exposes neatly the tension between what Big Pharma and its shareholders may want -- fat, recurring profits -- and what patients and society desire -- a short course of treatment that results in a complete cure. As genomic medicine continues to progress, that question is likely to be posed more frequently, both behind closed doors, and in public debates. It will also bring with it another one: if curing patients isn't a sustainable business model for traditional pharma companies, why not find other ways to fund the development of genomic treatments?

from the this-american-life-indeed dept

The idea that there's so-called "regulatory capture" of the Federal Reserve by the very Wall Street bankers they're supposed to regulate isn't one that's particularly surprising to anyone. It's been obvious for quite some time, but everyone in power has generally looked the other way about it. ProPublica and This American Life teamed up this week to reveal the the secret recordings of Carmen Segarra, a bank examiner of the Fed, who was supposed to be watching over Goldman Sachs. When she realized what was truly going on (basically, her bosses keep suggesting she tone down her criticism and concerns of Goldman), she bought a hidden recorder and started recording. The resulting story is astounding and incredibly revealing -- even if you already assumed much of it was true. Michael Lewis -- who's been reporting on Wall Street for decades -- describes the recordings as the "Ray Rice video for the financial sector", which may be a slight exaggeration, but the story is still quite telling.

The report starts off by detailing how the Fed conducted a (for internal use only) study on how it totally missed the financial meltdown of 2008. And the answer won't surprise you, even if those close to the system claim they were surprised:

The most daunting obstacle the New York Fed faced in overseeing the nation's biggest financial institutions was its own culture. The New York Fed had become too risk-averse and deferential to the banks it supervised. Its examiners feared contradicting bosses, who too often forced their findings into an institutional consensus that watered down much of what they did.

From there, the story moves on to Segarra, who had been hired to be a senior examiner watching over Goldman Sachs. She actually tried to do her job, and for that was fired after just seven months on the job. She had discovered serious conflict of interest problems on certain deals, and then (on top of that) discovered that Goldman Sachs had no official "conflict of interest policy" that conformed with what was required by the Fed. When she wrote up a report on this, her boss insisted that she take out the claim that there was no policy, despite it being true. She was soon fired -- and then sued the Fed (and lost).

However, this desire to whitewash embarrassment seems endemic at the Fed. It happened to the guy who wrote that report detailing the Fed's cultural problems:

One New York Fed employee, a supervisor, described his experience in terms of "regulatory capture," the phrase commonly used to describe a situation where banks co-opt regulators. Beim included the remark in a footnote. "Within three weeks on the job, I saw the capture set in," the manager stated.

Confronted with the quotation, senior officers at the Fed asked the professor to remove it from the report, according to Beim. "They didn't give an argument," Beim said in an interview. "They were embarrassed." He refused to change it.

The report goes on to detail how quickly the Fed seemed to take orders from Goldman Sachs. There was a situation in which a Fed examiner, Michael Silva, expressed concerns about a probably-legal, but still ethically-questionable, deal that Goldman was involved in -- effectively moving around some shares in a Spanish bank to make the bank look fiscally more sound than it really was. But, expressing concern about the deal apparently wasn't allowed:

Shortly after the Santander transaction closed, Segarra notified her own risk-specialist bosses that Silva was concerned. They told her to look into the deal. She met with Silva to tell him the news, but he had some of his own. The general counsel of the New York Fed had "reined me in," he told Segarra. Silva did not refer by name to Tom Baxter, the New York Fed's general counsel, but said: "I was all fired up, and he doesn't want me getting the Fed to assert powers it doesn't have."

This conversation occurred the day before the New York Fed team met with Goldman officials to learn about the inner workings of the deal.

In the audio version on This American Life, you can hear the incredible sequence in which Silva "fires up" his team to go confront Goldman about a specific problem with the deal (the other bank had required to get the Fed to sign off and say there were "no objections" and Goldman hadn't done so). However, then there's the recording of the meeting that happens right after Silva talks about going in and asking this important question -- and Silva doesn't get around to asking it until an hour into the meeting, and does so incredibly meekly, basically backing off the question before he's even finished answering it, handing Goldman an out.

There's also audio of other Fed employees talking about how they should almost apologize to Goldman for all their questions, out of fear that Goldman (1) will think they're being "critical" of the bank and (2) won't share information on future deals (even though they're legally required to do so).

It's classic regulatory capture. The Fed guys -- who literally work in the building with Goldman -- want the Goldman guys to like them.

There's a lot more in the report, leading to a point in which Segarra is basically told to not be so good at doing her examiner job, but to instead build more relationships. The Fed employee doing the scolding, Segarra's supervisor who used to have her job, points out that she's upset some people with her brusque language, her "sharper elbows" and the fact that she was "breaking eggs." Segarra points out that she's doing her job and, furthermore, doing a "good job" as well:

"I'm here to change the definition of what a good job is," Kim said. "There are two parts it: Actually producing the results, which I think you're very capable of producing the results. But also be mindful of enfolding people and defusing situations, making sure that people feel like they're heard and respected."

In other words, don't do your job quite so well, because you're pissing off people at Goldman Sachs. That eventually led to the fight over the conflict of interest policy. After investigating it for a while, having Goldman officials and Michael Silva directly admit that there was no real policy, suddenly Silva tells her she can't actually say that in the report she's writing up. This is because folks at Goldman got upset about it, pointing to a generally vague policy statement on conflicts of interests (which doesn't come close to actually being a policy), and insisted that they had a policy.

"You have to come off the view that Goldman doesn't have any kind of conflict-of- interest policy," are the first words Silva says to her. Fed officials didn't believe her conclusion — that Goldman lacked a policy — was "credible."

Segarra tells him she has been writing bank compliance policies for a living since she graduated from law school in 1998. She has asked Goldman for the bank's policies, and what they provided did not comply with Fed guidance.

"I'm going to lose this entire case," Silva says, "because of your fixation on whether they do or don't have a policy. Why can't we just say they have basic pieces of a policy but they have to dramatically improve it?"

Later in the conversation, Silva says that he "didn't get taken seriously" when he challenged higher-ups in the past over that shady banking deal, and thus Segarra should just give in to the higher-ups demands. A week later, she was fired.

There's also this story, which Lewis summarizes:

In meetings, Fed employees would defer to the Goldman people; if one of the Goldman people said something revealing or even alarming, the other Fed employees in the meeting would either ignore or downplay it. For instance, in one meeting a Goldman employee expressed the view that "once clients are wealthy enough certain consumer laws don't apply to them." After that meeting, Segarra turned to a fellow Fed regulator and said how surprised she was by that statement -- to which the regulator replied, "You didn't hear that."

In the actual This American Life episode, the story is even more damning. There were other regulators (not from the Fed) there as well, who all heard it too. And they were all talking about (something that was confirmed by others there) and the other Fed employee insisted that Goldman must have been joking and no one should pay attention to it.

The end result of all this: the banks run the show.

I actually didn't find the full report to be quite as damning as Lewis does. Some of the issues raised by Segarra do appear to be slightly overstated, and there do seem to be reasonable explanations for some of the things she found questionable. But it doesn't change the overall issue, which is that the banks effectively control the regulator, not through direct intimidation (or at least not in ways that are directly evident in this report), but because the Fed itself seems unwilling to ever actually rock the boat and make sure that Goldman is held to account.

Now, I'm among those who are concerned about situations involving over-regulation and government interference where it's not necessary. But we should also be concerned about companies that are simply too powerful, and are able to engage in activities that abuse market power to harm the public -- and to engage regulatory capture to rubber stamp them. This episode shows how that's apparently the norm on Wall Street.

from the this-again dept

Five years ago, we wrote a story about how Rockey Mountain Bank in Wyoming accidentally sent a bunch of confidential information to the wrong Gmail account, then took Google to court to try to find out who received the email. Google demanded a court order first, leading a judge to (ridiculously) order the company to shut down the entire email account. It appears that something somewhat similar may have just happened with a more recognizable bank name: Wall Street giant Goldman Sachs went to court recently to order Google to delete an errant email containing confidential client information. According to the filing (which most news sites haven't posted, for reasons unknown):

On June 23, 2014, an employee of the consulting firm was testing changes to
Goldman Sachs’s internal reporting and validation process. The employee intended to send a
copy of the internal report to the email address provided to her by Goldman Sachs, which is in
the form “[first name].[last name]@gs.com,” but instead mistakenly sent a copy of the internal
report to an address in the form “[first name].[last name]@gmail.com.” She is not the owner of
the gmail address.

The mistakenly sent email contains certain account and client related information
(the “Confidential Client Information”). Goldman Sachs’s clients have a right to maintain the
confidentiality of the Confidential Client Information. Furthermore, Goldman Sachs has an
obligation to protect the privacy of its customers’ confidential information.

Goldman Sachs has made efforts to retrieve, have deleted or otherwise protect the
mistakenly sent Confidential Client Information. As part of those efforts, on June 26, 2014,
Goldman Sachs sent an email to the gmail address to which the information was mistakenly sent
requesting that it be promptly deleted and that the recipient confirm in writing that s/he had done
so. There has been no response.

Goldman also contacted Google directly, and as in the Rocky Mountain case, Google told Goldman to go to court first. Late yesterday, Goldman Sachs noted that Google has told the company that it has blocked access to that particular email and that the email in question had not yet been accessed by anyone. It appears that Google did this despite the lack of a court order, which may seem a bit questionable. Given the nature of the situation, and the fact that Goldman has actually gone to court and requested this, it does seem a bit more reasonable that Google agreed to at least temporarily block access to that particular email until a court decides if it needs to continue blocking it permanently.

from the privacy-policy dept

This one is fairly incredible. Bloomberg LP's main business is selling ridiculously expensive terminals to Wall Street/financial folks for tracking market information. While I understood why they were able to succeed early on, I've been shocked that the internet hasn't seriously disrupted their business over the past decade or so. However, the company also has a pretty big journalism business as well (even owning Business Week, which it bought for pennies a few years ago). Now it's coming out that the journalists at Bloomberg had all sorts of access to how customers use the terminals.

Until recently, all Bloomberg employees could access information about when and how terminals were used by any customer. But after complaints by Goldman Sachs and JP Morgan, Bloomberg says its 2,000 or so journalists no longer have access to that information, though other staff still do. Bloomberg has more than 15,000 employees.

Incredibly, the reporters also had access to "help" transcripts of any customer and could call them at will, which apparently some of them did for fun.

Several former Bloomberg employees say colleagues would look up chat transcripts of famous customers, like Alan Greenspan, for amusement on slow workdays. The transcripts were typically mundane and hardly incriminating, but who wouldn’t enjoy watching a former US Treasury secretary struggle to use a computer? And, in theory, the substance of someone’s query to customer service could reveal specific information that he’s interested in, tipping off a reporter to a story.

These are the kinds of things that small companies sometimes screw up with poor controls over information. But a massive company like Bloomberg -- especially when it deals with critical financial information -- you would think would have much tighter controls on information. I'd be curious if this violates whatever privacy policies Bloomberg has with its customers. At the very least, it should make Bloomberg customers pretty damn skeptical of continuing to use their terminals. Seems like a huge opportunity for competitors with better controls to step in.

from the deprived-of-use dept

We've been pointing out for a while that copyright is not property and that infringement is not theft. And yet... some people can't seem to let this go -- insisting that both claims are true. Of course, one retort from our side of the discussion is the simple fact that you don't see people who copy content being charged with "theft." However, in a case that received plenty of publicity involving a Goldman Sachs employee who had copied some code from the company, he was actually charged with theft. In response, however, a 2nd Circuit appeals court panel has said he was wrongfully charged, because code is not property. The court specifically cites the Dowling case, which we've discussed on many occasions, which makes clear that infringement is a different beast than theft.

The infringement of copyright in Dowling parallels Aleynikov’s theft of computer code. Although “[t]he infringer invades a statutorily defined province guaranteed to the copyright holder alone[,] . . . he does not assume physical control over the copyright; nor does he wholly deprive its owner of its use.” Id. at 217. Because Aleynikov did not “assume physical control” over anything when he took the source code, and because he did not thereby “deprive [Goldman] of its use,” Aleynikov did not violate the NSPA.

Of course, it's somewhat unfortunate that in a ruling in which the court finds that Aleynikov has been improperly charged with "theft" under the law... they still repeatedly refer to his actions as "theft." It's too bad they did not properly note that he copied the code, but still repeatedly claim he "stole" it, as they describe his actions in passing -- but when they discuss the actual legal aspect, they admit that there was no theft.

Separately, the court rejected the charges brought under the Economic Espionage Act, noting that the law he was charged under is limited to trade secrets concerning products used in commerce, and since the code in question was for internal use anyway, it did not qualify under the law.

To some extent (and then further in a concurring opinion written by one of the judges on the panel), the court seems to suggest that it doesn't necessarily like these results (this is less clear in the official opinion, but it appears to be what the panel is implying at times), but that the problem is how Congress wrote these particular statutes. It may be true that the laws are drafted poorly, but it's important that copying code is not seen as theft, because it is not theft. Still, the overall ruling here is good, though it could have been more complete.

from the urls-we-dig-up dept

Big companies often pride themselves on the corporate cultures they've developed. But over time, maintaining the same culture can become difficult as industries change and when shareholders aren't so happy with a company's performance. When employees leave a big firm, the culture can quickly bleed away. Here are just some examples of employees publicly pointing out some corporate culture shifts.

The reality is a little more nuanced. The thing is, the SEC heavily regulates the IPO process, because (officially) it doesn't want companies to abuse the process, lie to investors, trick them into buying shares in something they don't understand or that's really much riskier, etc. We've discussed in the past, and years back, VentureBeat had a great article that noted many startups appeared to violate the basics of SEC regulations even in just saying they were raising money from private investors, because just talking about it publicly can be seen as a form of a "public offering." It seems that Goldman was becoming worried that all of the public scrutiny on this deal was suddenly getting mighty close to being a "public offering" type of situation, in which the SEC could conceivably step in and claim that it needs to follow all of the standard IPO rules -- which it had not been doing. Goldman has apparently hoped to keep everything a lot more quiet, but the NY Times broke the story, and then everyone else piled on.

The whole thing remains a little silly. This whole thing has been an effort to route around the regulations from the beginning, so this is just the latest piece of that, though it may serve to annoy a lot of American Goldman clients. In the end, it wouldn't surprise me to find out that many of them figure out offshore vehicles for getting in on this deal anyway.

from the this-is-not-efficient dept

After the dot com bubble burst, quickly followed by major accounting scandals such as Enron, Congress, in the way that it normally does, overreacted with a kneejerk response. The most obvious part of this was the Sarbanes-Oxley rules, which didn't do much (if anything) to actually prevent future frauds, but did make the cost of being a public company much, much, much higher -- effectively creating a serious tax on startups looking to go public. It also built up an entire industry around SOX compliance, that almost guarantees the law can never be repealed. In response, an already weak IPO market went almost entirely dormant, an even as things picked up with startups, fewer and fewer actually wanted to go public. It was just too costly, and the potential liability for execs was way too high. Google resisted going public for as long as it possibly could, before it finally tripped an old SEC rule, that required companies with more than 500 shareholders and over $10 million in assets to effectively act as a public company -- at which point, it figured it might as well just go public.

That was in 2004. In the six years since then, a number of other companies have worked on a number of loopholes and ways to avoid going public even longer. Witness Goldman Sach's recent deal to invest a ton of its investors' money into Facebook shares -- which normally would have tripped this rule -- except that Goldman is playing a little game, and setting it up so that it pretends there's only one shareholder, keeping Facebook away from the magic 500 number. The SEC is apparently already looking into this.

But even before the Goldman/Facebook deal became public, the SEC had apparently begun probing the rise of these new efforts to let hot startups sell shares on a market, without actually going public. Hot startups including Facebook, Twitter, Zynga and LinkedIn have all been heavily involved in such markets, which basically let employees of those companies get many of the benefits of being a public company, without the massive costs and regulatory oversight.

This is, in many ways, the exact opposite of what was intended with things like SOX -- which was designed to increase oversight. But, instead, it's done the opposite. The end result is that wealthy clients of Goldman Sachs and other Wall Street firms can invest in these companies, but others cannot. Now, some might claim that this is a "good" thing, in that the general public shouldn't be investing in highly risky stocks that could easily collapse. But, it's also creating a tiered system where these companies are able to avoid going public for much longer, but the wealthy and well-connected can get in at about the same point that the public used to be able to get in. And, they are buying. Goldman has already announced that it's already oversubscribed.

While some are cheering on the SEC investigation of these practices, it seems to be missing the real lesson here: which is that money always seeks out the unregulated loopholes, and the more you regulate, the more hurdles you put up to efficient markets, the more money will pour into whatever side pools that are left unregulated. And that's dangerous. The economic collapse of 2008 was a result of this, as tons of money went into unregulated areas of the market and was sliced and diced in increasingly misleading ways. The classic response is to just regulate those areas -- but that ignores the fact that there will always be new loopholes and new unregulated areas that money will rush into. We're seeing it all the time.

What's happening with Goldman, Facebook and those other startups can be traced back to SOX in the first place. If we didn't make it ridiculously burdensom to be public, then firms wouldn't seek out these hidden alternatives. But our government refuses to let the market ever learn lessons. The lessons from the dot com bubble and Enron and such should have been that people learned to be more careful in their investments. But the government rushes in and sets up a pretend safety net -- so we never get to learn.

from the well-*%#! dept

You may recall the infamous Senate hearings looking into Goldman Sachs a few months back, where Senator Carl Levin repeatedly quoted an email about how something was "a shitty deal." Included during the discussion was this fun exchange between Levin and Goldman Sach's CFO, David Viniar:

LEVIN: And when you heard that your employees, in these e-mails, when looking at these deals said, God, what a shitty deal, God what a piece of crap -- when you hear your own employees or read about those in the e-mails, do you feel anything?

VINIAR: I think that's very unfortunate to have on e-mail.

(The gallery bursts out laughing.)

...

LEVIN: On an e-mail?

VINIAR: Please don't take that the wrong way. I think it's very unfortunate for anyone to have said that in any form.

LEVIN: How about to believe that and sell them?

VINIAR: I think that's unfortunate as well.

LEVIN: That's what you should have started with.

VINIAR: You're correct. It is.

Well, now it appears that Goldman Sachs has figured out a way to try to prevent that "unfortunate" situation from occurring again. Rather than not selling shitty deals while pretending they're golden, it's putting in place an email filter to block swear words from being sent over email. The filter will apparently even block out **** for those who try to textually bleep their swear words. That'll fix things.

To be fair, the whole "shitty deal" comment did get blown out of proportion. It certainly does look bad, but Goldman Sachs was correct in that it was not acting as an advisor in that situation. Its job was merely to sell the client what they wanted to buy. But, even so, it does seem kind of amusing that the response to this getting publicity is to try to stop the swearing...

from the hot-news-needs-to-burn dept

In the last year, there's been a sudden resurgence in interest in the concept of "hot news," a doctrine that most people thought was dead and buried, which allowed a judicially-created form of intellectual property on factual information that was deemed to be "hot news." There's no statute that covers this. Just a court decision. And that was a century or so ago. But... the concept started showing back up in court recently, and in March a ruling came down, blocking a website from reporting on news for two hours, using this doctrine. With that on the books, other "hot news" lawsuits were quickly filed.

However, one such recent lawsuit seems to stretch the concept of hot news so far that you can only sit back and admire the audacity of including it in the lawsuit, while fearing the results should a court actually buy it. Thomas O'Toole has the details of what is likely to be a very interesting lawsuit on a few different factors, beyond just the hot news claim (but we'll get to those other issues, so read on...).

The case apparently involves an employee at Goldman Sachs (or potentially multiple employees) who got the username and password of another account holder on a database put together by a company called Ipreo Networks, called "Bigdough." Bigdough is apparently a database of contact info on 80,000 financial industry people. The Goldman Sachs employee(s) logged in with someone else's username/password and downloaded a bunch of information.

This sort of thing happens all of the time. People share logins all of the time. Violating it is basically a terms of service violation, but here the company has broken out the big guns. Yes, it's claiming that the contact info in its database represents "hot news," and Goldman accessing it is a violation of the "hot news" doctrine. Think about that for a second. Contact information. "Hot news?" And, of course, the whole purpose of the "hot news" doctrine is about another publisher republishing the information -- something that Goldman Sachs didn't do here at all. The whole "hot news" claim here seems to stretch the (already questionable) concept way past the breaking point. Hopefully that part gets tossed quickly. Otherwise, imagine what else will suddenly be called "hot news."

But that's not all that's interesting in this case. As O'Toole notes in his report, there are two other interesting legal questions, having to do with the use of someone else's login. First, there's the question of whether or not Goldman Sachs is liable here, even if the actions are just that of a rogue employee (or group of employees). O'Toole points out that the legal standard to get GS on the hook here is pretty damn high. The second question, of course, is whether or not just using a login that someone shared with you is a violation of the Computer Fraud and Abuse Act (CFAA). We recently discussed how there are also a growing series of cases trying to stretch the CFAA to make all sorts of activities classified as "unauthorized access." CFAA was really designed as an anti-hacking law -- which was about people really breaking in to a computer system. If someone simply shares their login credentials with you, does that really count as criminal hacking? If that's the case, an awful lot of people may be guilty of doing so.

So, this should be a fun one to follow. Three separate interesting legal questions, and in all three cases, Ipreo appears to be trying to stretch the law beyond its intentions, so hopefully the court recognizes this. If you want to see the full filing, it's below: